Mandelson announces extension of car scrappage scheme

Business secretary tells Labour conference that the recession-busting scheme will continue longer than originally planned

The car scrappage scheme was announced in the April budget and allows anyone owning a car that is more than 10 years old to receive a £2,000 subsidy if they buy a new model car. Photograph: Barry Batchelor/PA

Lord Mandelson, the business secretary, announced this afternoon that the government is extending the popular car scrappage scheme.

He said the scheme would cover an extra 100,000 vehicles. It is estimated that so far the scheme has covered 200,000, suggesting the programme will carry on early into the new year. The extension of the programme will cover vans purchased before September 2002.

Mandelson has been pressing the issue in talks with Downing Street and the Treasury, and sources at the Labour party conference in Brighton said that he had won his battle.

The recession-busting scheme has been one of the most effective forms of subsidies to the car industry and has saved tens of thousands of jobs.

The car scrappage scheme was announced in the April budget and allows anyone owning a car that is more than 10 years old to receive a £2,000 subsidy if they buy a new model car. It is thought to have thousands saved of skilled workers' jobs, keeping unemployment lower than it would otherwise have been.

No British car plant has shut down during this recession, but Jaguar warned last week it intends to close a West Midlands plant, and the future is uncertain for Vauxhall's factories since the plants were sold by General Motors to Magna, the Canadian car-parts maker.

Last week's figures from the Society of Motor Manufacturers and Traders saw an increase in the number of cars produced for sale in the UK, where scrappage has raised demand.

The scheme was introduced in Germany initially and led to a lengthy debate inside the Department for Business on whether the scheme would only benefit foreign car manufacturers.

The £300m UK scheme was due to end next month, but both the Engineering Employers' Federation and the Unite trade union have been pressing for it to be extended.

The German €5bn (£4.4bn) car scrappage scheme has encouraged almost 2 million motorists to scrap their old cars and exchange them for new ones.

The scheme helped boost car sales by 28% in August compared with a year ago.